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Remuneration
Since 1997, the wages and conditions of employees in the APS have been negotiated and determined at the agency level. After almost a decade of agency level bargaining, the proportion of ongoing employees covered by individual Australian workplace agreements (AWAs) continues to trend upwards to about 10% (compared with 8.5% last year and 6.7% in 2002–03), while around 90% of employees are covered by certified agreements (CAs).
In negotiating wages and conditions, agencies have flexibility subject to consistency with the Government’s Policy Parameters for Agreement Making in the APS.16 These policy parameters require CAs and AWAs to be consistent with the Government’s workplace relations policy but also cover a range of other matters, including the important requirements that improvements in pay and conditions be linked to organisational productivity and performance and that they be funded from within agency budgets. To further encourage consistency with Government policy, in 2002 the policy parameters were adjusted to require CAs to contain clauses allowing for comprehensive AWAs to be made with employees. In December 2003, the policy parameters were expanded further to include a new parameter requiring agencies to include in their agreements leave policies and employment practices that support the release of Defence Reservists for peacetime training and deployment.
After examining agreement types in more detail, this section will examine remuneration data on salary increases in 2004, compare total remuneration packages in the APS with the private sector, offer an AWA and CA wage comparison and then examine performance pay bonuses.
The section then moves from the provision of micro remuneration data to the broader, macro remuneration issues that have been canvassed in previous State of the Service reports. Agencies’ remuneration policies are discussed and the importance of robust remuneration policies is considered; the extent of overlapping salary ranges using the 2004 data is then presented followed by a discussion of funding arrangements.
Certified agreements
Agreement-making in the APS is now well established, with some agencies having entered into their fifth agency-level agreement. Data provided by DEWR indicates that at 30 June 2005, there were 103 CAs operating in the APS. Thirty-four agreements were made during the year to 30 June 2005 (compared with 38 agreements made in the previous 12 months). Overall, the 103 agreements cover around 95% of ongoing APS 1–6 employees and just under 80% of ongoing EL employees but few, if any, SES employees.
Almost 70% of operating agreements have been made with one or more trade unions under section 170LJ of the Workplace Relations Act 1996 (Cwlth), while 30% have been made directly with employees under section 170LK. These proportions have been much the same over the past three years. The number of operating CAs that are stand-alone agreements which completely displace the Australian Public Service Award 1998 has remained steady for the past two years, at 98% (it was 94% at the end of 2002–03 and 60% in 1998–99).
The average annualised wage increase (AAWI) for all APS agreements certified in the 12 months to 30 June 2005 was 4.2% (the same as for 2003–04, compared with 4.9% at the end of 2002–03). When calculated from the nominal expiry date (NED) of an agreement to the NED of that agreement’s replacement, the AAWI was 4.0% for the 12 months to 30 June 2005 (the same as for the previous 12 months). The spread of NED to NED AAWI in APS CAs in the 12 months to 30 June 2005 narrowed over the year, ranging from 2.7% to 4.7% (last year the comparable data was 2.1% to 5.0%).
Table 5.3: Comparisons of wages growth, 1997–98 to 2004–05
| APS AAWI (a) (%) | APS NED to NED AAWI (b) (%) | Private sector AAWI (c) (%) | Comparable sectors’ AAWI (d) (%) | ABS wage cost index (e) (%) | |
| 1997-98 | 2.6 (f) | NA | 4.0 | 4.1 | |
| 1998-99 | 2.6 (f) | NA | 3.9 | 4.1 | 3.2 |
| 1999-00 | 3.3 | 3.0 | 3.6 | 3.6 | 2.9 |
| 2000-01 | 4.8 | 3.5 | 3.7 | 3.9 | 3.4 |
| 2001-02 | 4.1 | 3.9 | 3.7 | 4.0 | 3.3 |
| 2002-03 | 4.9 | 3.9 | 3.6 | 4.1 | 3.4 |
| 2003-04 | 4.2 | 4.0 | 3.7 | 4.3 | 3.6 |
| 2004-05 | 4.2 | 4.0 | 3.8 | 4.4 | 3.8 |
Notes:
(a) Average annual wage increases in current APS certified agreements. Provided by DEWR.
(b) The NED to NED AAWI measures the average annual pay increase from the nominal expiry date (NED) of the previous agreement to the NED of the current agreement. The NED to NED AAWI allows for particular comparisons of annual wage increases across APS agency agreements and should only be used in this context.
(c) Average annual wage increase in current private sector certified agreements.
(d) Average annual wage increase in industry sectors with more than half their employees having post-school qualifications. ABS data shows that there were six industry sectors with more than 50% of their employees with post-school qualifications—Electricity, Gas and Water (65%), Construction (55%), Property and Business Services (56%), Government Administration and Defence (54%), Education (77%), and Health and Community Services (61%). There were 13 industry sectors with half or less than half of their employees with tertiary qualifications. This data is sourced from the ABS 2001 Census of Population and Housing. The data on AAWI by industry sector was provided by DEWR.
(e) ABS Cat. No. 6345.0 Labour Price Indexes, Australia. Average annual index—ordinary time hourly rates of pay excluding bonuses. It is a broad measure of wage growth in both the federal and state jurisdictions covering all employees.
(f) These numbers are estimates based on a DEWR publication Pay Increases in APS Agencies—April 2001 Report which calculated that the AAWI since 1996 to the end of 2000 was 2.6 per cent per annum.
Measuring and comparing remuneration increases is difficult, given the different timeframes for negotiating different agreements and changes in the composition of remuneration. Using the NED to NED AAWI abstracts from some of these problems.17 Comparisons with the private sector are more difficult as comparable NED to NED AAWI data is not available. Using AAWIs as the basis for comparison, as shown in Table 5.3 below, the private sector AAWI at 30 June 2005 was 3.8%. On an AAWI basis, the average APS wage increase in CAs has been above the average for the private sector over the past five years. While on the face of it this may be of some concern, Table 5.3 shows that further comparison based on comparable skill levels in the private sector, suggests that over the past eight years the APS is broadly matching equivalent private sector increases but not leading them. This issue is considered later in the chapter and a comparison between APS and private sector total remuneration packages based on the Mercer remuneration survey data is provided.
Australian Workplace Agreements
Data collected by DEWR from agencies indicates that the number of operative AWAs in the APS over the 12 months to the end of June 2005 increased by around 14% to 11,823. This figure is comprised of 1937 AWAs covering the SES (1870 last year), 5966 covering EL employees (5506 last year) and 3837 covering APS 1–6 employees (2986 last year). The rate of growth for AWA coverage of APS 1–6 employees continued to be strong (over 28%) but this increase is from a very low base. The APS 1–6 classification group still has the lowest coverage level (around 3% of all ongoing employees) compared with around 21% for EL employees and essentially all the SES.
The last three employee surveys asked employees to indicate if their salary was set out in an AWA or their agency’s CA. Consistent with the above DEWR data, nearly all the SES and 23% of EL employees (a similar proportion to the past three years) responded that their salary was set out in an AWA. However, 9% of APS 1–6 employees indicated they were covered by an AWA (similar to the 10% last year), three times the coverage indicated by the DEWR data. As suggested in last year’s report, the most likely explanation for this discrepancy between the DEWR data and the employee survey data is that some survey respondents in this classification group are unaware of the distinction between AWAs and CAs.
Salary and performance pay
Data on salary increases, salary levels and performance pay (including who is eligible and the amounts actually paid) by classification for those on AWAs and CAs is available from the results of an agency survey of SES and non-SES remuneration conducted annually for DEWR by Mercer Human Resource Consulting (the Mercer remuneration survey) each December.18 As participation in the Mercer remuneration survey is voluntary there are limitations surrounding the generalisability of the data collected from the 47 participating agencies in 2004 to the whole of the APS. That said, as the survey includes remuneration data for approximately 55% of the APS employees, it does provide a reasonably sound guide to remuneration in the APS.
Salary increases in 2004
For non-SES employees, the 2004 Mercer remuneration survey found that the median Total Remuneration Package19 (TRP) increased by 4.2% in 2004 compared to 5.3% between 2002 and 2003. There were wide variations across classifications with APS 3 and 6 employees recording the highest median movement (5.2%) and APS 1 employees (2.7%) the lowest. The comparable median TRP annual increase for the private sector provided by Mercer is 2.9% for equivalent non-SES classifications. However, the AAWI in CAs from comparable industry sectors is slightly higher (at 4.4%) than the non-SES TRP median increase (4.2%). The AAWI increases in CAs are discussed above.
For SES levels, the 2004 Mercer remuneration survey found that median SES TRP increased by 7.1% for SES Band 1, 8.2% for SES Band 2, and 9.4% for SES Band 3. The overall median across the SES Bands being 8.2%. Although these increases are significantly higher than the overall private sector equivalent increases of 4.1%, the SES TRP still lags behind private sector equivalents, as discussed below.
Comparing TRP to private sector
An important aspect of the Mercer survey is to allow agencies to benchmark the remuneration of their employees with private sector equivalents. This is important, given the increasing levels of lateral recruitment discussed in Chapter 8. From the APS-wide perspective, as shown in Figure 5.4 below, TRP for the APS 1–3 levels is fairly competitive with the private sector. The TRP then falls progressively below the private sector for APS 4 and above until the EL classifications. Both TRP and median base salary for non-SES employees on AWAs is generally higher where agencies use both AWAs and CAs.
Figure 5.4: TRP Quartile 1 and median comparison between APS and private sector
Source: Mercer 2004 APS Non-SES Remuneration Survey
While the median SES TRP increases discussed above exceeded the equivalent private sector increases in 2004, as shown in Figure 5.5 the Mercer surveys confirmed that the SES median TRP remains between 7% (for SES 1) and 58% (for SES 3) below private sector TRP for comparable employees.
Figure 5.5: TRP Quartile 1 and median comparison between APS and private sector (by classifications SES 1 to SES 3), 2004
Source: Mercer 2004 APS SES Remuneration Survey
AWA/CA comparison
The past few State of the Service reports have provided an analysis of differences in salaries paid under AWAs and CAs based on the results of all relevant data in the Non-SES Mercer Remuneration Survey. Drawing on the Mercer time series data,20 Table 5.4 below shows that, for non-SES median base salaries, employees on AWAs received higher salaries during 2001, 2002 and 2003 at all classification levels except for APS 4s in 2003. In 2004, APS 2s and APS 4s covered by CAs had a higher median base salary than those covered by AWAs.
Table 5.4: Median base salary comparison—CAs and AWAs, 2001 to 2004
| APS Classification | 2001 | 2002 | 2003 | 2004 | ||||
| CA | AWA | CA | AWA | CA | AWA | CA | AWA | |
| APS 2 | 32540 | 34000 | 34536 | 35841 | 36216 | 36980 | 38141 | 36898 |
| APS 3 | 36360 | 36700 | 37675 | 40827 | 40545 | 41000 | 42042 | 43015 |
| APS 4 | 40600 | 41900 | 42241 | 44262 | 45688 | 45071 | 47387 | 46900 |
| APS 5 | 44870 | 45000 | 46527 | 49074 | 49850 | 50000 | 52008 | 52535 |
| APS 6 | 51650 | 53020 | 53581 | 56790 | 56457 | 58494 | 59693 | 61357 |
| EL 1 | 63760 | 65100 | 68096 | 69984 | 71338 | 72172 | 74425 | 75059 |
| EL 2 | 78880 | 80040 | 82839 | 85691 | 86797 | 88699 | 90751 | 93247 |
Source: Mercer 2004 APS Non-SES Remuneration Survey
Note: The bolded figures highlight highest salary for a particular classification in each year.
Examining the gap difference between the two groups of employees provides a more thorough understanding of median base salary trends over time. Between 2001 and 2002 the gap grew substantially in favour of AWAs for all classifications with the exception of APS 2s where it fell marginally. However, 2002 represented the high-water mark for differentials between AWA and CA median base salaries and in 2003 the gap reduced considerably for all classifications consistent with the higher AAWI data for CAs for 2002–03. By 2004, not only was the gap further reduced, CAs provided a higher median base salary for APS 2s and APS 4s.
Consistent with last year’s findings, Table 5.5 shows that percentage increases in median base salary varied widely between those on CAs and AWAs and between classifications. The variability in actual outcomes reflects a number of different factors, including that individuals move through salary ranges at different paces (as part of a performance management system), or because the proportion of employees at the top of salary ranges (and therefore generally ineligible for additional increases via movements in base salary) varies between classifications. It may also reflect remuneration policies deliberately targeting higher increases at particular classification levels or the retention of employees with particular skills and experience.
Table 5.5: Median base salary comparison—CAs and AWAs, 2003, 2004
| CA | AWA | Percentage difference between base salary in AWAs and CAs % | ||||||
| APS Classification | 2003 $ | 2004 $ | % increase | 2003 $ | 2004 $ | % increase | Dec 2003 | Dec 2004 |
| APS 2 | 36216 | 38141 | 5.3 | 36980 | 36898 | – 0.2 | 2.1 | - 3.3 |
| APS 3 | 40545 | 42042 | 3.7 | 41000 | 43015 | 4.9 | 1.1 | 2.3 |
| APS 4 | 45688 | 47387 | 3.7 | 45071 | 46900 | 4.1 | - 1.4 | - 1.0 |
| APS 5 | 49850 | 52008 | 4.3 | 50000 | 52535 | 5.1 | 0.3 | 1.0 |
| APS 6 | 56457 | 59693 | 5.7 | 58494 | 61357 | 4.9 | 3.6 | 2.8 |
| EL 1 | 71338 | 74425 | 4.3 | 72172 | 75059 | 4.0 | 1.2 | 0.9 |
| EL 2 | 86797 | 90751 | 4.6 | 88699 | 93247 | 5.1 | 2.2 | 2.8 |
Source: Mercer, 2003 APS Non-SES Remuneration Survey, revised version released October 2004; 2004 APS Non-SES Remuneration Survey.
The above comparisons between AWA and CA remuneration include all data from the Non-SES Mercer Remuneration Survey. In the 2004 APS Non-SES Remuneration Survey Mercer suggests that a more useful comparison would involve an agency-byagency approach that focused on agency policy regarding the particular employment instrument, while factoring out the impact of differing agency pay policies, in terms of remuneration competitiveness (captured in the above data). This is achieved by limiting the analysis to agencies that use both AWAs and CAs at each of the classification levels.
Adopting this approach, the Mercer data shows that, where agencies offer both AWAs and CAs, most agencies have higher median base salaries and median TRP under their AWAs than CAs across all non-SES classifications. Table 5.6 sets out the Mercer agency-by-agency analysis for TRP.
Table 5.6: Comparison of median TRP in 2004 (in agencies that used both AWAs and CAs to cover employees at the same level) (number of agencies)
| APS Classification | Equal Median | Higher AWA Median | Higher CA Median |
| APS 2 | 7 | ||
| APS 3 | 7 | 2 | |
| APS 4 | 14 | 5 | |
| APS 5 | 21 | 2 | |
| APS 6 | 24 | 8 | |
| EL 1 | 6 | 29 | 3 |
| EL 2 | 1 | 37 | 3 |
Source: Mercer 2004 APS Non-SES Remuneration Survey.
However, Mercer notes that it is not uncommon for agencies to report that median base salary was equal for AWAs and CAs. This suggests that, at least in agencies reporting similar median base salaries, many agencies offering both types of agreements use AWAs as a means of topping-up salaries. This is also reflected in agencies’ responses (discussed below) as to why they have employees at the same classification on AWAs and CAs.
Agencies’ remuneration policies and their use of AWAs/CAs for non-SES employees
Consistent with last year’s results, nearly all agencies (95%) reported having some non-SES employees covered by an AWA. For 89% of relevant agencies, this meant employing non-SES employees at the same classification level on a mix of AWAs and the agency’s CA (i.e. some employees at the same level are on AWAs while others are covered by the CA). Approximately three-quarters of agencies reported that this occurred for EL 2 employees, just over two-thirds of agencies for EL 1 employees and 60% of all agencies for APS 1–6 employees.
As shown in Figure 5.6, the two most common reasons for having employees at the same classification level on a mix of AWA coverage and CA coverage were the same for EL 2, EL 1 and APS 1–6 employees, namely, to attract and retain people with critical skills and knowledge and to reflect differences in skill and/or knowledge. Most of these employees, of course, have also been able to choose whether to be on a CA or their existing AWA. These practices are consistent with last year’s findings.
Figure 5.6: Reasons for having employees at same level on mix of AWAs and CAs, 2005
Source: Agency survey
In 2004–05, a higher proportion of agencies reported using AWAs to attract and retain critical skills or knowledge at the EL classifications compared to last year. These changes occurred in an environment where EL employee mobility increased at a rate higher than the APS average, suggesting the possibility that agencies are using AWAs to enhance wages and conditions for employees with critical skills and knowledge rather than simply maintaining previous arrangements following movement between agencies. These trends will continue to be monitored. For more information on mobility issues generally see Chapter 2, and for a discussion of mobility and classification issues see
In 2004–05, more agencies reported using AWAs to implement performance pay systems for APS 1–6 employees. As agencies have been required to have performance pay systems in place for a number of years this finding may reflect changes to agency performance pay systems designed to accommodate broader changes in the labour market or other agency-specific priorities.
Despite the use of AWAs for almost 8% of non-SES APS employees across 95% of agencies, only 36% (compared to 26% in 2003 and 37% in 2004)21 of agencies employing non-SES employees on AWAs reported having a written remuneration policy dealing with employees covered by AWAs.22 Another 19% of relevant agencies reported that they were currently developing such a policy. These APS wide figures are similar to those reported last year but changes did occur within large agencies. Although large agencies remain more likely to have a written remuneration policy that deals with employees covered by AWAs, this figure is down to 57% from 67% last year whereas medium and small agencies remained relatively stable at 42% and 21% respectively.
The previous two State of the Service reports have commented that the availability of flexibility for agencies in relation to remuneration has reinforced the desirability of clear remuneration policies that set out the criteria for determining remuneration for employees. The progress in this area that was commented on last year appears to have reached a plateau and it remains apparent that there are a substantial number of agencies that should undertake the development of robust remuneration policies that make clear the links between skills, performance and pay. Moreover, these policies should be transparent and available to all employees. This is important from an accountability perspective as well as for building and maintaining employee confidence in, and support for, individually based approaches to remuneration that are consistent with merit-based employment and a fair workplace (as required by the Values). Both workforce planning and skills deficit issues confronted by agencies, as discussed in Chapter 8, make it clear that remuneration policies should also incorporate a strategic approach for dealing with longer term agency capability issues to address current and future labour market characteristics.
An indicator of remuneration policy effectiveness is employee attitudes toward performance pay and these are examined in Chapter 8.
Overlapping salary ranges
The last two State of the Service reports commented on the increasing salary overlap between classifications across the APS. It was found that salary overlaps within agencies were confined to a relatively small number of agencies and affected only very small numbers of employees with particular skills or particular duties, moderating to a large extent concerns about undermining the merit principle.23
Figures 5.7 and 5.8 present data from the Mercer APS Non-SES Remuneration Survey on the extent of APS-wide overlaps in 2004. Figures 5.7 and 5.8 indicate that for the APS 1–3 levels and Graduate and APS 4–6 levels, respectively, there continues to be considerable overlap between classifications. Indeed, some APS 1 employees earn more than the median APS 2 salary and some APS 5 employees earn more than the median APS 6 salary. However, the 50% of employees paid around the median (i.e. in the second and third quartiles) do not overlap between any of these classifications. This is consistent with last year’s findings.
Figure 5.7: Base salary distribution in 2004 for APS 1–3 employees, 2004
Source: Mercer 2004 APS Non-SES Remuneration Survey
Figure 5.8: Base salary distribution for Graduate and APS 4–6 employees, 2004
Source: Mercer 2004 APS Non-SES Remuneration Survey
Figure 5.9: Base salary distribution for EL 1–2 employees, 2004
Source: Mercer 2004 APS Non-SES Remuneration Survey
Figure 5.9 illustrates that salary overlaps also occur at the EL classifications with some EL 1 employees earning more than the median EL 2 salary and some EL 2 employees earning less than the EL 1 median. However, consistent with the Graduate and APS 1–6 experience, the 50% of employees paid around the median do not overlap between the EL 1 and EL 2 classifications or between the EL 2 and the SES Band 1 classifications. Figure 5.10 provides the salary overlaps for the three SES bands and the findings are the same as for the EL classifications discussed above.
Figure 5.10: Base salary distribution for SES employees, 2004
Source: Mercer 2004 APS SES Remuneration Survey
The Commission is currently conducting an evaluation exercise into APS agencies’ remuneration policies, including the longer-term strategic aspects of using AWAs to deal with APS capability issues, and the intersection of the devolved responsibilities for establishing salary ranges and classification structures. The findings of the Evaluation exercise will be reported next year.
Performance pay bonuses
Results from the 2004 Mercer remuneration survey indicated that, overall, 27% of non-SES employees and 85% of SES employees are eligible for bonuses. Eligibility varies by classification with Graduates and APS 1–6 employees averaging 21% and ELs averaging 48% eligibility. The Mercer figures are slightly higher than those collected in the State of the Service employee survey that found 18% of relevant APS 1–6 employees, 42% of relevant EL employees and 78% of relevant SES employees were eligible for a bonus.
Consistent with last year’s data, responses to the Mercer survey indicated that employees on an AWA were more likely to be eligible for a bonus and more likely to receive a bonus than those on a CA (for employees at the APS 1–2 levels the reverse was true). The more widespread access to performance bonuses for those employees on AWAs serves to increase the remuneration gap between those on CAs and those on AWAs. Table 5.8 below provides an agency-by-agency analysis of median total remuneration (TR) from the Mercer survey which shows that, when bonuses are included, the differential between AWAs and CAs is even more widespread than for TRP.
Table 5.8: Comparison of median TR in 2004 (in agencies that used both AWAs and CAs to cover employees at the same level) (number of agencies)
| APS Classification | Equal Median | Higher AWA Median | Higher CA Median |
| APS 2 | 7 | ||
| APS 3 | 7 | 2 | |
| APS 4 | 16 | 3 | |
| APS 5 | 22 | 1 | |
| APS 6 | 28 | 4 | |
| EL 1 | 35 | 3 | |
| EL 2 | 1 | 38 | 2 |
Source: Mercer 2004 APS Non-SES Remuneration Survey
In agencies participating in the Mercer remuneration survey, 67% of EL 1s on an AWA were eligible for a bonus compared to only 18% covered by the CA, and 68% of AWA-covered EL 2s were eligible for a bonus compared to 26% on the CA. This differential is further reinforced by the fact that, for those employees who received a performance bonus, those on AWAs consistently receive higher bonuses at all classification levels. Of those who received a bonus at the EL 1 classification, for example, the average performance bonus received by those on AWAs was $4174, while for those on CAs the average was $1475. The comparable figures for the EL 2 classification, were an AWA bonus of $4625 and a CA bonus of $3083. In a 2004 audit of performance management in the APS, the ANAO found that across all classifications AWA employees received 127% more in bonuses than did CA employees.24 Employee perceptions from the employee survey on the operation of performance pay are discussed in Chapter 8.
The ANAO audit also found that many employees believed that the distribution of performance pay in their agency was unfair in that bias and favouritism was exhibited in performance reward decisions.25 The different level of bonuses associated with AWAs and CAs should not, however, be interpreted as firm evidence of unfairness or discrimination. Many agencies report making strategic use of AWAs to attract and retain key employees, and some high performing employees may be particularly attracted to the opportunity to gain performance bonuses. Moreover, higher performance bonuses at higher classification levels also represent more pay at risk. Nevertheless, the data does reinforce the importance of agencies having clear remuneration policies, and of consulting employees about them, to limit the risk of a perception (as well as the reality) of unfairness.
Funding arrangements
Last year’s report touched on the matter of pay increases in the APS and their funding. The policy parameter that requires the ongoing funding of remuneration increases for CAs and AWAs from productivity improvements within agency budgets had not, at least at the average level, appeared to have prevented APS employees from achieving salary increases in excess of the average of the private sector.
However, the comparison with the average increase for the total private sector is somewhat misleading in that the APS workforce is, on average, a more highly qualified workforce than the general Australian labour force. The results of the 2005 State of the Service employee survey indicated that 66% of APS employees had a tertiary qualification26 (similar to the 64% last year); comparative data for the broader employed Australian labour force is 47% with tertiary qualifications according to the 2001 ABS Census of Population and Housing.
A comparison with industry sectors which have relevant proportions of employees with tertiary qualifications reverses the gap between average increases in the APS and other sectors in 2005. The AAWI in certified agreements current at the end of June 2005 for industry sectors in which more than half of employees have tertiary qualifications was 4.4% (up from 4.2% last year); in industry sectors where half or less than half of their employees have tertiary qualifications the AAWI remained stable at 3.7%.27 So, on average, at June 2005, pay increases in the APS for CAs (an AAWI of 4.2%—the same as last year’s) are not increasing more quickly than in comparable areas of the private sector, though they are not lagging behind by much. This limited evidence also tends to suggest that there is little ‘bidding up’ of pay amongst APS agencies beyond what the broader labour market demands, at least for employees covered by CAs. However, if demographic changes in Australia impact on labour markets as predicted (see Chapter 8) the pay differentials between the public and private sectors discussed earlier could make attraction to public sector employment more difficult, particularly at the higher classifications.
The 2002–03 State of the Service report advised that there was no evidence that levels of base salary had fallen behind in small agencies, and that the average salary paid in very large agencies (greater than 5000 employees) was more consistently at the lower end of the range. The 2003 Mercer Non-SES Remuneration Survey indicated that very small agencies (with fewer than 100 employees) consistently had the lowest level of average base salary paid for all classifications from APS 2 through to the SES Band 1 classification.28 Although the 2004 Mercer data does not duplicate this pattern, the broad trend is similar to that reported last year, with small agencies towards the lower end of the salary scale for most classifications.
It is reasonable to assume that in a tightening labour market small agencies may begin to experience difficulties in matching the market rates for the skills they need, given current funding arrangements. This issue will require continued monitoring informed by data on agency resourcing to establish whether there are potential longer-term issues.
The overall productivity gains required to be made by APS agencies by the current funding arrangements are quite substantial. In addition to the ongoing efficiency dividend, the wage cost index used for the indexation of expenses also incorporates an assumption of productivity gains by agencies to finance wage increases, in line with Government policy. The wage cost indexes developed by Finance are used for the indexation of departmental expenses and various other Commonwealth outlays, including certain specific purpose payments. The wage cost indexes are weighted averages of measures of wage and non-wage growth. The wage component excludes wages growth that should be offset by productivity gains and is typically adjusted by not much more than half the movement in the CPI. The non-wage component reflects movements in the consumer price index (CPI). The indexes are designed to reflect the reasonable expectation across the economy that wage movements should reflect genuine productivity gains, at least above some modest inflationary factor. For the APS, in order to fund pay increases of around 4%, the index requires agencies to find productivity gains of around 2%, which is broadly in line with productivity gains across the economy as a whole over the period from 2001–02 to 2004–05. A further 1.25% is required to fund the efficiency dividend.
Agencies may achieve these gains by genuine efficiency gains or by sensible reconsideration of priorities. Notwithstanding this, there is the real possibility that for some agencies funding pay increases means cutting activities and/or employees, and that it can also mean reduced capacity to absorb new initiatives. Looking ahead, there may be some problems, particularly amongst smaller agencies, in maintaining competitive pay rates. As evidenced in the MAC report on Managing and Sustaining the APS Workforce,29 the APS is likely to face increasing wages and conditions pressures with a tightening labour market.
17 See note (b) to Table 5.3.
18 Mercer Human Resource Consulting, 2004 APS Remuneration survey conducted for DEWR, in 2001, 2002, 2003 and 2004. Since 2002 the Mercer surveys present a snapshot of data as at 31 December each year. For additional information see <http://www.workplace.gov.au/workplace/Category/ResearchStats/Agreement/2004APSRemunerationSurvey.htm>
19 Total Remuneration Package (TRP) represents the total of: Base salary; superannuation (including employer productivity superannuation contribution amounts); annual remuneration value of motor vehicles (including parking and FBT); and other fixed benefit items. Base Salary represents full-time equivalent annualised PAYG salary. It includes post- tax employee superannuation contributions and any additional post-tax sacrifice amount. It excludes all other cash components including bonuses and allowances.
20 Graduates have not been included as changing definitions makes time series comparisons problematic and the APS 1 classification has been omitted as data was incomplete, both between agencies and over the time period.
21 The survey question asking about a written remuneration policy covering non-SES employees has changed slightly over the past three years but the data remains comparable as the response captured remained essentially the same.
22 There continues to be an apparent discrepancy between the results of the agency survey and the Mercer survey. The 2004 Mercer survey reported that 82% of the 47 responding agencies stated that they had a formal non-SES remuneration strategy that is communicated to non-SES employees (up from 76% of 49 agencies in 2003). The question in the State of the Service agency survey asked agencies the more specific question as to whether agencies had ‘a written remuneration policy that deals with how to set and adjust the remuneration of non-SES employees on AWAs?’ It may be that the ‘strategies’ referred to in the Mercer survey relates to broader documents, such as an agency’s CA, in some of the responding agencies.
23 Australian Public Service Commission, State of the Service Report 2002–03, 2003 p. 87 <http://www.apsc.gov.au>
24 ANAO, Performance Management in the Australian Public Service, Performance Audit Report No. 6, August 2004, <http://www.anao.gov.au>
25 ibid.
26 For comparability purposes the ABS definition of tertiary education is adopted, that is, formal education beyond secondary education, including higher education, vocational education and training, or other specialist post-secondary education or training. The qualification categories contained in the employee survey question included under this definition of tertiary education are: vocational qualification; associate diploma; undergraduate diploma; bachelor degree; postgraduate diploma; masters; and doctorate.
27 There were six ABS industry sectors in which more than 50% of employees had tertiary qualifications—Electricity, Gas and Water (65%), Construction (55%), Property and Business Services (56%), Government Administration and Defence (54%), Education (77%) and Health and Community Services (61%). There were 13 other industry sectors with half or less than half of their employees with tertiary qualifications. This data is sourced from the ABS 2001 Census of Population and Housing. The data on AAWI by sector was provided by DEWR.
28 Mercer Human Resource Consulting, 2003 APS Remuneration Survey.
29 Management Advisory Committee, Managing and Sustaining the APS Workforce.
